Home Insights Gardens and PPR

Gardens and PPR

By Ensors Team
30th Mar 2020

Whilst an Englishman’s Castle is often his Capital Gains Tax-free home, it is not always the same for his garden.  Just because the house may be tax-free due to the Principal Private Residence relief (PPR), it could be costly mistake to assume that the garden is also included in the same pot.

In its simplest form, PPR is available on a home (or part thereof) that has been an individual’s only or main home during their period of ownership and includes land which has been for his/her own occupation and enjoyment with that residence as part of its garden or grounds and up to the permitted area.  From this (simple?) statement, already there are conditions attached to the “garden”.  Let’s put this into English.

Firstly, the “permitted area” is restricted to 0.5 hectare (or just under 1.25 acres in old money) and this includes the footprint of the house.  Where the garden is of a style consummate with the property, larger areas may attract the PPR relief – for example 3 hectares of formal gardens at a manor house could be appropriate to the style of the house, but the same sized plot for a semi-detached house at the edge of town would more than likely find the relief restricted to the 0.5 hectare permitted area and a capital gains tax liability arising on the rest. 

The dictionary definition used by HMRC is that a garden is a piece of land, usually partly grassed and adjoining a private house, used for recreation and for growing flowers, fruit and vegetables.  Here we now have the important restriction that will exclude exclusive business use of the grounds, or agricultural or development use.  “Grounds”, in turn, are taken to be slightly larger than a mere garden, usually enclosed, and either surrounding or attached to the dwelling house.  

HMRC will generally take the view that a house and grounds come as a package when acquired and so if you later increase the size of your garden, you must ensure that the new land is brought into use genuinely as part of the garden to be covered by PPR (other conditions notwithstanding).  A person who has his garden some distance from his home will find it much harder to extend his PPR to cover all of his land – especially if it had been purchased at a different time to the house.  That said, if a garden is genuinely associated with a property, the existence of a road between the two does not automatically prevent a PPR claim. 

The use of the land at the date of sale is important too.  Land that may be completely unused and overgrown but could be shown as historically having been used as part of the garden can qualify, as can areas of woodland, other buildings, riverbanks and occasionally some paddocks, always with a view as to the size, usage and location of the land (relative to the house), and style and presence of the home.

The order of disposal should also be considered.  If the owner of the house sells part of the garden whilst continuing to live there, the part sale of the garden will attract PPR (remembering other conditions of course).  However, as the land will only qualify for relief if it is the garden of the residence at the time that the residence is disposed of, if the owner disposes of the house before the garden, relief for the land retained is affected.

So, it should not automatically be assumed that a garden will attract the same tax relief as a house.  

With any capital gains tax on the disposal of residential property now being payable within 30 days of the completion of the sale (and heavy penalties if you are late in paying the tax or making the declaration), it is imperative that you review the capital gains tax position before any disposals take place.  With longer-term planning, potentially remedial action could take place first – for example bringing grounds back into use as part of the garden to maximise the exemption.

Gardens are not always green – sometimes they have very grey areas too